The Financial Detective 2005 Case Study Solution

Product Overview

The case presents the student with financial ratios for eight pairs of unidentified companies and asks them to mate the description of the company with the financial profile derived from the ratios. The primary objective of this case is to introduce students to financial ratio analysis?in particular, the range of ratios and the insights each one affords. This case presumes that students have already been introduced to the definitions of various financial ratios through other readings or lectures. The structured exploration of pairs of companies within an industry affords a number of important insights into strategy and financial performance. First, the economics of individual industries account for significant variations in financial ratios because of differences in technologies, product characteristics, or competitive structures. Second, financial performance results from managerial choices: within industries, the wide variation in financial ratios is often a result of the differences in corporate strategy in marketing, operations, and finance. For those reasons, this case is a good springboard into subsequent classes, which deal with the interaction of strategy and financial performance.

 

I.Brief Background:

The financial statements of no two companies arealike. External factors that affect such differences arethe nature of the industry in which the company belongs,and the financial norms and standards that govern in eachindustry.In addition, the internal factors are also consideredsuch as the management’s philosophy and operating style andits attitude towards achieving certain goals. Moreover,business strategies are also a key factor in analyzing suchfinancial, as well as non-financial differences betweencompanies.Lastly, the social perspective should not be taken forgranted. The presence of good customer relations and asense of social responsibility add up in building companygoodwill which will in turn contribute to the operations ofthe entity as a whole.

II.Case Objective:

Given the common sized financial statements of eachcompany in each industry, the objective is to match thefinancial data with the company descriptions. Exhibit 1shows the financial statements, as well as the financialratio analysis of each company.The professor will be given a copy of the case studyto provide her with the company descriptions which will beserve as a basis for the analysis of financial data.

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